It's no secret the real estate market in the U.S. is diverse and extensive. As of 2021, the median price of real estate in the United States is $374 900. Such prices are what have made real estate quite appealing. However, few people are willing to look beyond their state for investment opportunities.
The truth is, you are missing out on quite a lot. You could be missing out on higher returns, better monetary value, and a better way to diversify your investment portfolio. While out-of-state investing could come with several challenges, especially for a first-time investor, having the proper knowledge and tools can help mitigate those risks.
So, here's everything you need knowledge on to invest in out-of-state real estate.
Reasons Why You Should Invest in Out-of-State Real Estate
Before we can dive into what you need to invest in out-of-state real estate, let's take a look at some reasons why you should invest.
Sometimes, owning a property where you live isn't possible simply because you can't afford to own one. For example, it may be pretty difficult to purchase real estate in places like Los Angeles, New York, and San Francisco, as even a million dollars may not afford you much.
So, if you are looking to invest in real estate, the out-of-state investment would be much more affordable.
> Builds Your Portfolio
The decision to make out-of-state investments for some investors is strategic. While other investors may have already taken advantage of the real estate opportunities available where they live and are now looking to expand.
Real estate investing can help build and diversify your real estate portfolio. It also gives you geographical diversity, protecting your assets, as they aren't all in one place.
Investing in real estate out of your state gives your portfolio diversification. And with investment diversification comes the minimization of risks. Rather than purchase the single best real estate in one market, a successful investor will maximize reward and minimize risk by holding one to two properties out of state.
Diversification guarantees that even if the real estate market where you live is down, the real estate property you have elsewhere will keep you afloat.
> Greater Returns
An out-of-state investment provides you with a more significant ROI. However, to have a high return on investment, you need to choose your investment market wisely. For example, buying property in an undervalued market guarantees you get long-term value from your investment.
Housing regulations, purchase price, mortgage expenses, and appreciation rates (among other factors) may be more favorable in a different state. You are guaranteed a potentially higher ROI with these factors being significantly low.
Factors to Consider Before Investing in Out-of-State Real Estate
Buying property is a serious investment. Therefore, it's essential to have the correct information at hand before settling on one.
Here are several factors you need to consider before investing in out-of-state real estate:
The first thing you should always consider when choosing real estate to invest in is the location. The key to finding the right place is focusing on affordability and demand. You also should not only consider the city, but the neighborhood too.
Ensure that the neighborhood you choose has properties that will offer you high cash on cash return and return on investment.
>State Tax Laws
Another important factor you should consider when investing in out-of-state real estate is the state tax laws. Understanding the state tax laws enables you to better understand every area's tax laws, as they differ based on the property's location.
The tax law differences can drastically affect your cash flow. It's also important to note that not all tax laws are the same in all states. For instance, there is no income property tax in Florida.
It doesn't matter if you are investing in your local real estate market or out of state; you always need to manage your assets continuously. While you can manage your property, doing it yourself can sometimes be a hassle.
Having a property manager will not only save you time, it can also help you make the right decisions.
How Do You Go About Expanding Your Out-of-State Real Estate Investment?
Once you've identified a suitable property to invest in, the next step is expanding your real estate investment. But how do you do that?
Start by Getting your Boots on the Ground
Once you've found the property you want to invest in, the next most important step you need to take is learning everything about the area. And the best way to do so is by working with a local renovation contractor.
A contractor can provide you with the contacts you need for all the real estate listings in your chosen city. You also get assistance deciding on the type of property that's okay to purchase.
Another benefit of having a contractor is having timely inspections done. These inspections are pretty necessary as they help ascertain the value and safety of the property.
You also get to have a contractor’s knowledgeable about all the state tax laws. In addition, you get professional help to diversify your investment portfolio.
Hire a Property Manager
Once you finally get the flipping houses you want to invest in, hiring a quality property manager is the next step. A manager will:
Help market, list, and show your rental to prospective tenants
Handle leases, deposits, rent collection and coordinate repairs
However, before settling on a property manager, ensure that you do your proper research. You can also ask for referrals and check their experience. After all, you don't want to hire a manager with no experience, which may lead to them neglecting your property. (Hint: might we suggest Whitewater Property Management?!)
Owning property out of state can be a challenging task. But if you aren't sure where to start, having a local contractor will help make your investment easier. And with all the benefits this investment opportunity has to offer, you can finally leap into investing in out-of-state real estate.
If you are considering an undervalued market, such as Chattanooga, TN, be sure to reach out to Larossa Construction. Larossa is a renovation contractor that has the experience and systems in place to help our clients start and build their real estate portfolios. We are a renovation contracting firm that is unlike any other construction company or remodeling contractor. Contact us today!